WTI near $55 as U.S. stockpile gain adds to recession fears

Oil held losses as a surprise gain in U.S. crude stockpiles added to deepening concerns over the outlook for global demand.

Futures fell 0.7% in New York after a 3.3% drop on Wednesday. China signaled on Thursday it may retaliate against President Donald Trump’s plans for tariffs on a further $300 billion of Chinese goods, potentially escalating the trade war that’s weighing on global economic growth and fuel consumption.

Meanwhile, government data on Wednesday showed U.S. crude inventories unexpectedly swelled by 1.58 million barrels last week.

Crude pared some of its losses on Thursday as China’s Foreign Ministry said it hopes the two sides can find a solution to the dispute. Yet prices are still down more than 6% this month as the trade war dents the demand outlook and U.S. production remains near a record. Crude joined a global sell-off of risk assets Wednesday, as weak economic data from Germany and China and the inversion of a key part of the Treasury yield curve fanned concern of a global recession.

“The risk-on and risk-off signals from wider market sentiment -- and not oil fundamentals -- are the current driver of oil prices, so if there’s a further escalation of trade tensions there could be worse to come,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “Oil-inventory draws have so far been limited, but we should eventually see inventories decline and help prices.”

West Texas Intermediate crude for September delivery slipped 38 cents to $54.85 a barrel on the New York Mercantile Exchange as of 8:44 a.m. local time. The contract lost $1.87 to settle at $55.23 on Wednesday, snapping a four-day gain.

Brent for October settlement declined 91 cents, or 1.5%, to $58.57 on the ICE Futures Europe Exchange. The contract closed down 3% on Wednesday, ending a four-day rally. The global benchmark crude traded Thursday at a $3.66 premium to WTI for the same month.

U.S. stockpiles posted a surprise increase for a second week, following seven straight weeks of declines. Inventories typically shrink at this time of year due to the summer driving season.

A contraction in Germany’s economy and Chinese industrial-output growth that trailed estimates added to concerns a global slowdown is deepening. White House Trade Adviser Peter Navarro said the U.S. can’t meet China halfway in trade talks in an interview on Fox Business Network.

© 2019 Bloomberg L.P.

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